I see some good advice, but some BAD information in the answer to this question.
First of all, you can modify an investment propertry loan, but the lenders and servicers are so incompetent, they can't seem to get the owner occupied ones done. I believe the reality is, not mater what the government wants them to do, most of the lenders would rather foreclose than modify, since the foreclosure is a 1 time hit to them, but the modification will cost them much more money over a longer period of time. But they ARE supposed to do midifications for investors. If you can get the receiver for IndyMac to modify, Citi should follow cause they are going to get NOTHING if this house is foreclosed.
Second, since you have 2 mortgages you will never be allowed to do a Deed-in Lieu. NEVER NEVER NEVER. Even if you didn't have 2 there is little chance to do one, since the lender's and servicers DO NOT do them as a rule. It is cleaner if they take the property to foreclosure. It wipes out any unseen or hidden liens and legall launders the property. Maybe a better word is sanitizes.
Third, there are TOO many OPINIIONS about how various things effect your credit. The Foreclosure itself does not effect your credit, greatly, except it will remain on your report for up to 10 years, or as long as the lender decides to keep on reporting it. If they only report for 5 years, it will drop off after 5, if they report it for 10 years, guess what. The damage to your credit score was done, when you go delinquent. And it gets worse every month you are delinquent. The best way to stop the bleeding is stop the delinquency. That is either make payments or sell the house. It does not matter if it is a short sale or a retail sale. Once you no longer owe a monthly mortgage payment, that you are not making, your credit score stops getting worse. That same thing applied to ANY credit dept. Once the delinquency stops your score stops getting worse and the quicker you can start imrpoving your credit.
It is just like bankruptcy. People say, it only stays on your credit for 7 years. Maybe, but only IF you drop out of the bankruptcy as soon as you file it. Lets assume you filed for Chapter 13, and you are in a 60 month program and you complete it and the bankruptcy is discharged. You are actually going to have that bankruptcy reported for 12 years. The 5 you were in it, and 7 more years after you were discharged.
Here is something you might think about doing. List your property with a realtor that; 1. understand the foreclosure process. VERY FEW DO. They will tell they do, to get the listing, but in my experience with realtors all over the country, it is fair to say, MOST OF THEM EXAGGURATE THEIR KNOWLEDGE on this subject. I am a Realtor and I see it EVERY day. Most also have no clue on how to do a Short Sale, they rely on "experts" to do it for them. Those "experts" have NO interest in you, and do not care that they get a good deal for all involved, but only care that they get some deal.
Work with a Realtor that understands the "Option Contract" approach, which has been adopted in CO, and one that works with investors. Right now this is one of the best ways to get rid of property via a short sale.
Make sure who ever is doing the Short Sale negotiation, is going after a deal that will be accepted as payment in full. Althouigh no one can guarantee that, since the bank(s) is/are the only ones that can make that decision. You do not want, the diffenence being sold off to another company to try to collect it, or you don't want to have to give the bank a note back for the unpaid amount.
Since this property is NOT your primary residence, you will be most likely will have to deal with income tax on a forgiven debt. However, depending on your personal finances, there are ways that may allow you to avoid that issue, by doing the correct IRS paperwork and filings.
I wish you the best, but be careful. There are A LOT of real estate agents or Realtors that claim they know or can do a whole lot more than they really know or can do. Interview a bunch, talk to a GOOD real estate attorney, and a competitant accountant.